20:
126:—brokerage fees and bid–ask spreads. Under competitive conditions, the bid–ask spread measures the cost of making transactions without delay. The difference in price paid by an urgent buyer and received by an urgent seller is the liquidity cost. Since brokerage commissions do not vary with the time taken to complete a transaction, differences in bid–ask spread indicate differences in the liquidity cost.
283:. The effective spread is more difficult to measure than the quoted spread, since one needs to match trades with quotes and account for reporting delays (at least pre-electronic trading). Moreover, this definition embeds the assumption that trades above the midpoint are buys and trades below the midpoint are sales.
436:, while other metals may have wider bid-ask spreads due to lower trading volumes, less liquidity, or large fluctuations in supply and demand. For example, rare metals like platinum, palladium, and rhodium have lower trading volumes compared to gold or silver, which can result in larger bid-ask spreads.
423:
If the USD/JPY currency pair is currently trading at 101.89/101.92, that is another way of saying that the bid for the USD/JPY is 101.89 and the offer is 101.92. This means that currently, holders of USD can sell US$ 1 for 101.89 JPY and investors who wish to buy dollars can do so at a cost of
291:
Quoted and effective spreads represent costs incurred by traders. This cost includes both a cost of asymmetric information, that is, a loss to traders that are more informed, as well as a cost of immediacy, that is, a cost for having a trade being executed by an intermediary. The realized spread
139:
The simplest type of bid-ask spread is the quoted spread. This spread is taken directly from quotes, that is, posted prices. Using quotes, this spread is the difference between the lowest asking price (the lowest price at which someone will sell) and the highest bid price (the highest price at
207:
Quoted spreads often over-state the spreads finally paid by traders, due to "price improvement", that is, a dealer offering a better price than the quotes, also known as "trading inside the spread". Effective spreads account for this issue by using trade prices, and are typically defined as:
111:. For a round trip (a purchase and sale together) the liquidity demander pays the spread and the liquidity supplier earns the spread. All limit orders outstanding at a given time (i.e. limit orders that have not been executed) are together called the Limit Order Book. In some markets such as
401:
281:
197:
403:
where the subscript k represents the kth trade. The intuition for why this spread measures the cost of immediacy is that, after each trade, the dealer adjusts quotes to reflect the information in the trade (and inventory effects).
415:
If the current bid price for the EUR/USD currency pair is 1.5760 and the current offer price is 1.5763, this means that currently you can sell the EUR/USD at 1.5760 and buy at 1.5763. The difference between those prices (3
295:
23:
Order book depth chart on a currency exchange. The x-axis is the unit price, the y-axis is cumulative order depth. Bids (buyers) on the left, asks (sellers) on the right, with a bid–ask spread in the middle.
119:, there are no designated liquidity suppliers, and liquidity is supplied by other traders. On these exchanges, and even on NASDAQ, institutions and individuals can supply liquidity by placing limit orders.
211:
122:
The bid–ask spread is an accepted measure of liquidity costs in exchange traded securities and commodities. On any standardized exchange, two elements comprise almost all of the
143:
734:
140:
which someone will buy). This spread is often expressed as a percent of the midpoint, that is, the average between the lowest ask and highest bid:
396:{\displaystyle {\text{Realized Spread}}_{k}=2\times {\frac {|{\hbox{Midpoint}}_{k+1}-{\hbox{Traded Price}}_{k}|}{{\hbox{Midpoint}}_{k}}}\times 100}
637:
Huang, Roger D.; Stoll, Hans R. (July 1996). "Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE".
79:
in some auction scenario. The size of the bid–ask spread in a security is one measure of the liquidity of the market and of the size of the
727:
276:{\displaystyle {\text{Effective Spread}}=2\times {\frac {|{\hbox{Trade Price}}-{\hbox{Midpoint}}|}{\hbox{Midpoint}}}\times 100}
676:
Bartram, Söhnke M.; Fehle, Frank R.; Shrider, David (May 2008). "Does
Adverse Selection Affect Bid-Ask Spreads for Options?".
720:
965:
495:
520:
990:
116:
984:
1467:
1407:
1203:
1109:
1193:
1161:
1065:
1019:
1002:
955:
1513:
978:
972:
465:
545:
Lee, Charles M. C. (July 1993). "Market
Integration and Price Execution for NYSE-Listed Securities".
192:{\displaystyle {\text{Quoted Spread}}={\frac {{\hbox{ask}}-{\hbox{bid}}}{\hbox{midpoint}}}\times 100}
1367:
1042:
1321:
1182:
1077:
960:
1209:
705:
1347:
1156:
1482:
1402:
1167:
1151:
1114:
996:
939:
907:
52:
292:
isolates the cost of immediacy, also known as the "real cost". This spread is defined as:
8:
1412:
1357:
1281:
1141:
1071:
900:
873:
475:
432:
Gold and silver are known for having the tightest bid-ask spreads, making them useful as
417:
84:
1452:
1427:
1387:
1372:
1291:
1230:
1188:
932:
842:
832:
693:
619:
570:
529:
445:
519:
Demsetz, H. 1968. "The Cost of
Transacting." Quarterly Journal of Economics 82: 33–53
1316:
1301:
1053:
701:
697:
654:
650:
611:
562:
450:
407:
Inner price moves are moves of the bid-ask price where the spread has been deducted.
1417:
1337:
1133:
1014:
890:
809:
765:
743:
685:
646:
601:
554:
522:
123:
96:
80:
72:
68:
1492:
1487:
1422:
1397:
1332:
1306:
1286:
1245:
1240:
1235:
1220:
1215:
1103:
1037:
1029:
917:
804:
1447:
1442:
1342:
1327:
1088:
1083:
1048:
847:
814:
760:
752:
499:
1507:
1311:
1296:
1271:
1225:
1177:
880:
837:
824:
775:
658:
615:
566:
76:
1472:
1392:
1362:
1352:
1172:
1146:
895:
885:
868:
799:
794:
770:
455:
104:
100:
48:
44:
1477:
1457:
1437:
1432:
1377:
1266:
1198:
108:
19:
1462:
1382:
1059:
922:
623:
574:
533:
470:
689:
1098:
1093:
1008:
927:
460:
60:
56:
712:
675:
606:
589:
558:
526:
115:, dealers supply liquidity. However, on most exchanges, such as the
1276:
912:
103:) to the transaction supplies liquidity. Liquidity demanders place
47:) is the difference between the prices quoted (either by a single
1120:
863:
112:
64:
786:
433:
95:
The trader initiating the transaction is said to demand
373:
353:
330:
260:
248:
238:
176:
169:
159:
298:
214:
146:
395:
275:
191:
1505:
588:Lee, Charles M. C.; Ready, Mark J. (June 1991).
590:"Inferring Trade Direction from Intraday Data"
728:
410:
735:
721:
636:
605:
587:
18:
1506:
742:
716:
544:
202:
129:
13:
669:
498:. Riskglossary.com. Archived from
427:
286:
83:. If the spread is 0 then it is a
14:
1525:
991:Electronic communication network
134:
639:Journal of Financial Economics
630:
581:
538:
513:
488:
366:
324:
255:
233:
117:Australian Securities Exchange
107:and liquidity suppliers place
1:
985:Multilateral trading facility
481:
59:) and an immediate purchase (
1408:Returns-based style analysis
1204:Post-modern portfolio theory
1110:Security characteristic line
651:10.1016/0304-405x(95)00867-e
90:
7:
1162:Efficient-market hypothesis
1066:Capital asset pricing model
1003:Straight-through processing
439:
424:101.92 JPY per US$ 1.
10:
1530:
979:Alternative Trading System
678:Journal of Futures Markets
466:Price elasticity of demand
1254:
1129:
1028:
948:
856:
823:
784:
750:
55:) for an immediate sale (
16:Financial markets concept
1043:Arbitrage pricing theory
411:Example: Currency spread
1322:Initial public offering
1183:Modern portfolio theory
1078:Dividend discount model
961:List of stock exchanges
99:, and the other party (
1210:Random walk hypothesis
594:The Journal of Finance
547:The Journal of Finance
496:"Spreads – definition"
397:
277:
193:
24:
1348:Market capitalization
1157:Dollar cost averaging
398:
278:
194:
22:
1168:Fundamental analysis
1152:Contrarian investing
1115:Security market line
1020:Liquidity aggregator
997:Direct market access
908:Quantitative analyst
296:
212:
144:
1413:Reverse stock split
1358:Market manipulation
1282:Dual-listed company
1142:Algorithmic trading
1072:Capital market line
874:Inter-dealer broker
476:Underwriting spread
1453:Stock market index
1292:Efficient frontier
1231:Technical analysis
1189:Momentum investing
1011:(private exchange)
901:Proprietary trader
843:Shares outstanding
833:Authorised capital
393:
377:
357:
334:
273:
264:
252:
242:
189:
180:
173:
163:
85:frictionless asset
25:
1514:Financial markets
1501:
1500:
1302:Flight-to-quality
1054:Buffett indicator
744:Financial markets
690:10.1002/fut.20316
420:) is the spread.
385:
376:
356:
333:
303:
265:
263:
251:
241:
218:
181:
179:
172:
162:
150:
69:futures contracts
43:in the case of a
1521:
1418:Share repurchase
1130:Trading theories
1015:Crossing network
973:Over-the-counter
810:Restricted stock
766:Secondary market
737:
730:
723:
714:
713:
709:
663:
662:
634:
628:
627:
609:
585:
579:
578:
553:(3): 1009–1038.
542:
536:
517:
511:
510:
508:
507:
492:
451:Demand and offer
402:
400:
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266:
261:
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253:
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230:
219:
217:Effective Spread
216:
203:Effective spread
198:
196:
195:
190:
182:
177:
175:
174:
170:
164:
160:
156:
151:
148:
130:Types of spreads
124:transaction cost
81:transaction cost
53:limit order book
1529:
1528:
1524:
1523:
1522:
1520:
1519:
1518:
1504:
1503:
1502:
1497:
1488:Voting interest
1398:Public offering
1333:Mandatory offer
1307:Government bond
1287:DuPont analysis
1250:
1246:Value investing
1241:Value averaging
1236:Trend following
1221:Style investing
1216:Sector rotation
1131:
1125:
1104:Net asset value
1030:Stock valuation
1024:
944:
852:
819:
805:Preferred stock
780:
746:
741:
672:
670:Further reading
667:
666:
635:
631:
607:10.2307/2328845
586:
582:
559:10.2307/2329024
543:
539:
527:10.2307/1882244
518:
514:
505:
503:
494:
493:
489:
484:
442:
430:
428:Example: Metals
413:
379:
372:
371:
365:
359:
352:
351:
336:
329:
328:
323:
322:
320:
305:
302:Realized Spread
300:
299:
297:
294:
293:
289:
287:Realized spread
254:
247:
237:
232:
231:
229:
215:
213:
210:
209:
205:
168:
158:
157:
155:
147:
145:
142:
141:
137:
132:
93:
17:
12:
11:
5:
1527:
1517:
1516:
1499:
1498:
1496:
1495:
1490:
1485:
1480:
1475:
1470:
1465:
1460:
1455:
1450:
1448:Stock exchange
1445:
1443:Stock dilution
1440:
1435:
1430:
1425:
1420:
1415:
1410:
1405:
1400:
1395:
1390:
1385:
1380:
1375:
1370:
1368:Mean reversion
1365:
1360:
1355:
1350:
1345:
1343:Market anomaly
1340:
1335:
1330:
1325:
1319:
1314:
1309:
1304:
1299:
1294:
1289:
1284:
1279:
1274:
1269:
1264:
1262:Bid–ask spread
1258:
1256:
1252:
1251:
1249:
1248:
1243:
1238:
1233:
1228:
1223:
1218:
1213:
1207:
1201:
1196:
1191:
1186:
1180:
1175:
1170:
1165:
1159:
1154:
1149:
1144:
1138:
1136:
1127:
1126:
1124:
1123:
1118:
1112:
1107:
1101:
1096:
1091:
1089:Earnings yield
1086:
1084:Dividend yield
1081:
1075:
1069:
1063:
1057:
1051:
1046:
1040:
1034:
1032:
1026:
1025:
1023:
1022:
1017:
1012:
1006:
1000:
994:
988:
982:
976:
975:(off-exchange)
970:
969:
968:
963:
952:
950:
949:Trading venues
946:
945:
943:
942:
937:
936:
935:
925:
920:
915:
910:
905:
904:
903:
898:
888:
883:
878:
877:
876:
871:
860:
858:
854:
853:
851:
850:
848:Treasury stock
845:
840:
835:
829:
827:
821:
820:
818:
817:
815:Tracking stock
812:
807:
802:
797:
791:
789:
782:
781:
779:
778:
773:
768:
763:
761:Primary market
757:
755:
748:
747:
740:
739:
732:
725:
717:
711:
710:
684:(5): 417–437.
671:
668:
665:
664:
645:(3): 313–357.
629:
580:
537:
512:
486:
485:
483:
480:
479:
478:
473:
468:
463:
458:
453:
448:
446:Bid–ask matrix
441:
438:
429:
426:
412:
409:
392:
389:
382:
368:
362:
350:
345:
342:
339:
326:
319:
316:
313:
308:
288:
285:
272:
269:
257:
246:
235:
228:
225:
222:
204:
201:
188:
185:
167:
154:
136:
133:
131:
128:
92:
89:
77:currency pairs
29:bid–ask spread
15:
9:
6:
4:
3:
2:
1526:
1515:
1512:
1511:
1509:
1494:
1491:
1489:
1486:
1484:
1481:
1479:
1476:
1474:
1471:
1469:
1466:
1464:
1461:
1459:
1456:
1454:
1451:
1449:
1446:
1444:
1441:
1439:
1436:
1434:
1431:
1429:
1426:
1424:
1423:Short selling
1421:
1419:
1416:
1414:
1411:
1409:
1406:
1404:
1401:
1399:
1396:
1394:
1391:
1389:
1386:
1384:
1381:
1379:
1376:
1374:
1371:
1369:
1366:
1364:
1361:
1359:
1356:
1354:
1351:
1349:
1346:
1344:
1341:
1339:
1336:
1334:
1331:
1329:
1326:
1323:
1320:
1318:
1315:
1313:
1312:Greenspan put
1310:
1308:
1305:
1303:
1300:
1298:
1297:Financial law
1295:
1293:
1290:
1288:
1285:
1283:
1280:
1278:
1275:
1273:
1272:Cross listing
1270:
1268:
1265:
1263:
1260:
1259:
1257:
1255:Related terms
1253:
1247:
1244:
1242:
1239:
1237:
1234:
1232:
1229:
1227:
1226:Swing trading
1224:
1222:
1219:
1217:
1214:
1211:
1208:
1205:
1202:
1200:
1197:
1195:
1194:Mosaic theory
1192:
1190:
1187:
1184:
1181:
1179:
1178:Market timing
1176:
1174:
1171:
1169:
1166:
1163:
1160:
1158:
1155:
1153:
1150:
1148:
1145:
1143:
1140:
1139:
1137:
1135:
1128:
1122:
1119:
1116:
1113:
1111:
1108:
1105:
1102:
1100:
1097:
1095:
1092:
1090:
1087:
1085:
1082:
1079:
1076:
1073:
1070:
1067:
1064:
1061:
1058:
1055:
1052:
1050:
1047:
1044:
1041:
1039:
1036:
1035:
1033:
1031:
1027:
1021:
1018:
1016:
1013:
1010:
1007:
1004:
1001:
998:
995:
992:
989:
986:
983:
980:
977:
974:
971:
967:
966:Trading hours
964:
962:
959:
958:
957:
954:
953:
951:
947:
941:
938:
934:
931:
930:
929:
926:
924:
921:
919:
916:
914:
911:
909:
906:
902:
899:
897:
894:
893:
892:
889:
887:
884:
882:
881:Broker-dealer
879:
875:
872:
870:
867:
866:
865:
862:
861:
859:
855:
849:
846:
844:
841:
839:
838:Issued shares
836:
834:
831:
830:
828:
826:
825:Share capital
822:
816:
813:
811:
808:
806:
803:
801:
798:
796:
793:
792:
790:
788:
783:
777:
776:Fourth market
774:
772:
769:
767:
764:
762:
759:
758:
756:
754:
749:
745:
738:
733:
731:
726:
724:
719:
718:
715:
707:
703:
699:
695:
691:
687:
683:
679:
674:
673:
660:
656:
652:
648:
644:
640:
633:
625:
621:
617:
613:
608:
603:
599:
595:
591:
584:
576:
572:
568:
564:
560:
556:
552:
548:
541:
535:
531:
528:
524:
521:
516:
502:on 2012-08-15
501:
497:
491:
487:
477:
474:
472:
469:
467:
464:
462:
459:
457:
454:
452:
449:
447:
444:
443:
437:
435:
425:
421:
419:
408:
405:
390:
387:
380:
360:
348:
343:
340:
337:
317:
314:
311:
306:
284:
270:
267:
244:
226:
223:
220:
200:
186:
183:
165:
152:
149:Quoted Spread
135:Quoted spread
127:
125:
120:
118:
114:
110:
106:
105:market orders
102:
98:
88:
86:
82:
78:
74:
70:
66:
62:
58:
54:
50:
46:
42:
38:
34:
30:
21:
1473:Tender offer
1393:Public float
1363:Market trend
1353:Market depth
1261:
1173:Growth stock
1147:Buy and hold
1056:(Cap-to-GDP)
896:Floor trader
886:Market maker
869:Floor broker
857:Participants
800:Golden share
795:Common stock
771:Third market
681:
677:
642:
638:
632:
597:
593:
583:
550:
546:
540:
515:
504:. Retrieved
500:the original
490:
456:Market maker
431:
422:
414:
406:
355:Traded Price
290:
206:
138:
121:
109:limit orders
101:counterparty
94:
49:market maker
45:market maker
40:
36:
32:
28:
26:
1478:Uptick rule
1458:Stock split
1438:Squeeze-out
1433:Speculation
1378:Open outcry
1267:Block trade
1199:Pairs trade
240:Trade Price
1483:Volatility
1463:Stock swap
1383:Order book
1134:strategies
1060:Book value
928:Arbitrager
923:Speculator
600:(2): 733.
506:2019-04-24
482:References
471:Spot price
1099:Fed model
1094:EV/EBITDA
1009:Dark pool
940:Regulator
785:Types of
751:Types of
698:154229351
659:0304-405X
616:0022-1082
567:0022-1082
461:Mid price
388:×
349:−
318:×
268:×
245:−
227:×
184:×
166:−
97:liquidity
91:Liquidity
33:bid–offer
1508:Category
1428:Slippage
1388:Position
1373:Momentum
1277:Dividend
956:Exchange
913:Investor
440:See also
375:Midpoint
332:Midpoint
262:Midpoint
250:Midpoint
178:midpoint
51:or in a
41:buy/sell
1317:Haircut
1121:T-model
933:Scalper
753:markets
706:1089222
624:2328845
575:2329024
534:1882244
73:options
37:bid/ask
1338:Margin
1206:(PMPT)
1068:(CAPM)
918:Hedger
891:Trader
864:Broker
787:stocks
704:
696:
657:
622:
614:
573:
565:
532:
113:NASDAQ
65:stocks
63:) for
31:(also
1493:Yield
1468:Trade
1403:Rally
1324:(IPO)
1212:(RMH)
1185:(MPT)
1164:(EMH)
1117:(SML)
1106:(NAV)
1080:(DDM)
1074:(CML)
1045:(APT)
1038:Alpha
1005:(STP)
999:(DMA)
993:(ECN)
987:(MTF)
981:(ATS)
694:S2CID
620:JSTOR
571:JSTOR
530:JSTOR
434:money
75:, or
1328:Long
1132:and
1062:(BV)
1049:Beta
702:SSRN
655:ISSN
612:ISSN
563:ISSN
418:pips
39:and
27:The
686:doi
647:doi
602:doi
555:doi
523:doi
391:100
271:100
187:100
171:bid
161:ask
61:bid
57:ask
35:or
1510::
700:.
692:.
682:28
680:.
653:.
643:41
641:.
618:.
610:.
598:46
596:.
592:.
569:.
561:.
551:48
549:.
199:.
87:.
71:,
67:,
736:e
729:t
722:v
708:.
688::
661:.
649::
626:.
604::
577:.
557::
525::
509:.
381:k
367:|
361:k
344:1
341:+
338:k
325:|
315:2
312:=
307:k
256:|
234:|
224:2
221:=
153:=
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